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DX (Group) Plc

DX (Group) plc Proposed combination with Menzies’ Distribution and Interim results

DX (Group) plc (LON:DX) has announced that it is in discussion on a potential combination with the Distribution division of John Menzies. The proposed transaction would see DX acquire Menzies Distribution for £60m in cash and the issue of new DX ordinary shares representing 80% of DX’s issued share capital as enlarged by the transaction. DX has also released H117 results. However, these have been over shadowed by today’s announcement with regards Menzies’ Distribution and by Wednesday’s announcement of a major new contract win. Worth more than £10m a year, for providing bespoke logistic service to Avon UK. After the difficulties faced this year, confirmation that performance will meet reduced FY17 estimates is welcome. Further positive news comes in the form of the pipeline that is the strongest it has been for some time at c. £30m. Due to the on-going discussions, the shares are expected to be suspended as of 7.30am this morning.

* Proposed acquisition of Menzies distribution – Whilst at an early stage, the current proposal indicates DX would acquire Menzies Distribution for £60m in cash and the issue of new ordinary shares representing 80% of DX’s issued share capital as enlarged by the transaction. The cash consideration would be satisfied by new borrowings by the enlarged group. The strategic rationale appears compelling with cost synergies alone identified as between £8m and £12m.

* HY17 results as expected – Revenue of £142.7m is up 0.8% on the £141.6m reported in H116 and includes £2.6m from last year’s acquisition of Legal Post and First Post. As reported back in February, EBITDA has been impacted by the decline average prices, failure to win anticipated levels of new business, structural decline in Exchange and additional costs at Swanley. However, the £3.9m reported for H117 is in line with lowered expectations and the announcement of the Avon contract this week is a major positive. Exceptional items amounted to £28.8m but with the majority, £27.4m, relating to a non-cash impairment charge of goodwill. The cash impact of exceptional items amounted to £1.4m. Net debt at period end of £18.4m with financing facility agreed with an invoice discounting facility replacing a revolving credit facility.